Co-operative Bank overtakes StanChart in the profitability ranks

A Co-operative Bank outlet in Nairobi. Equity retains first position among top lenders despite shareholders’ funds dip to 29 per cent. PHOTO | FILE 

By GEOFFREY IRUNGU, girungu@ke.nationmedia.com
Posted  Thursday, April 7   2016 at  19:37

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New numbers released by Nairobi-based Cytonn Investments show Co-op Bank also overtook several other listed commercial banks including Barclays, NIC, I&M and DTB in ROE or profitability.

At the same time, Equity Bank despite slipping from 29 per cent, retained the top position among the top five banks with the highest ROE at 25.5 per cent against second-placed Co-op Bank’s 25.1 per cent.

However, in terms of the growth in the earnings per share (EPS), I&M bank came top with 26.2 per cent increase and was billed in the Cytonn report as the fastest growing listed bank.

Co-op Bank and I&M achievements were all the more notable against slight EPS growth of 2.8 per cent for all listed banks.

“Kenya banks recorded much lower earnings growth, driven by the challenging economic environment in 2015, with the high interest rates which reduced credit uptake especially by the private sector,” said Cytonn Investments private equity manager Shiv Arora.

Interest rates rose in the fourth quarter of last year after the Central Bank of Kenya (CBK) raised the benchmark policy rate in a span of a few months to 11.5 from 8.5 per cent.

The price of money rose after the CBK attempted to control the depreciation of the shilling after it fell by 13 per cent in a matter of weeks to nearly 106 units to the dollar.

Mr Arora noted that deposit growth had been slow compared to the expansion of the banks’ loan books. Many depositors preferred to invest in government paper where returns exceeded 20 per cent on an annual basis. The average fixed deposit rate did not even hit eight per cent.

“The high interest rates, which reduced credit uptake especially by the private sector… at the same time [had] a profound effect on deposit mobilisation as most depositors greatly preferred to invest in government securities at the time,” said Cytonn Investments.

Cytonn chief investment manager Elizabeth Nkukuu said corporate entities, including banks, were likely to do better this year than last year as the economic environment improved — projecting a gross domestic product growth rate of between 5.5 and 6.0 per cent.

“We expect this year to be better for corporate earnings due to the relatively improving interest rate environment, stable shilling and improvement in credit growth,” said Ms Nkukuu.

She said that the biggest issue for commercial banks and listed firms appear to be corporate governance. In recent times, issues of corporate governance have arisen with regard to listed companies such as National Bank of Kenya and Uchumi Supermarkets. For those that are not quoted, Imperial and Dubai banks have collapsed, partly because of issues relating to corporate governance.